Investors blindsided by unexpected profit

Wall Street got a nasty Q2 shock today from Amazon, which announced an unexpected profit driven largely by its cloudy AWS business.

Total net sales for the three months ending on June 30 were $23.19bn, a 19.9 per cent year-on-year gain that ran right past financial analysts' estimates.

But the real surprise was that the online retail giant actually managed to pocket some of that this time. On average, the Wall Street bean counters were expecting Amazon to lose $0.13 per share, and the pessimists among the lot thought it could lose as much as $0.61 per share. Instead it posted earnings of $0.19 per diluted share.

Its net income for the quarter was a modest $92m, but that's compared to the $126m loss it posted for the same period a year ago.

Sales for Amazon's retail divisions followed familiar patterns. North America accounted for 60 per cent of its revenue, with $13.80bn coming from the region. International sales accounted for $7.57bn of the total.

As in past quarters, media sales were Amazon's biggest business internationally. Media accounts for 27.7 per cent of the company's international revenue, while they only account for 19 per cent of its business in North America.

Of greater interest to The Register, however, is AWS. This was only the second quarter in which Amazon broke out the numbers for its AWS business as a separate line item, but it's revealing historical figures for comparison purposes as it goes along.

For Q2, AWS brought in $1.82bn in revenue, which was 81.5 per cent higher than in the second quarter of 2014. The division's operating income, on the other hand, was $391m, a 407.8 per cent annual gain.

The numbers show the AWS business to be healthy and thriving, compared to the retail side of Amazon, which is regularly buffeted by seasonal buying patterns and the overhead involved with shifting physical goods. In fact, when you add up the operating income of all Amazon's reporting segments, the AWS division's operating income now represents 36.4 per cent of the total.

Amazon continues to invest in AWS to maintain its lead over competitors like Microsoft and Google. It spent $1.21bn on purchases of property and equipment in the second quarter and a good chunk of that likely went to building out data centers. And while the figure was actually down 6 per cent from a year ago, it still wasn't peanuts.

Naturally, the news thrilled investors and Amazon's share price skyrocketed by nearly 17 per cent in after-hours trading on the news. ®